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OUTLOOK FOR THE INDIAN ECONOMY PRESENTATION at SANEI SEMINAR ISLAMABAD

OUTLOOK FOR THE INDIAN ECONOMY PRESENTATION at SANEI SEMINAR ISLAMABAD. Rajiv Kumar April 23, 2008. 1. Global Integration (Current Account & Capital Account as a % GDP). 2. Global Context. GDP Growth: India & World (3-Year Moving Average). Projected Years.

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OUTLOOK FOR THE INDIAN ECONOMY PRESENTATION at SANEI SEMINAR ISLAMABAD

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  1. OUTLOOK FOR THE INDIAN ECONOMY PRESENTATIONatSANEI SEMINAR ISLAMABAD Rajiv Kumar April 23, 2008 1

  2. Global Integration (Current Account & Capital Account as a % GDP) 2

  3. Global Context GDP Growth: India & World(3-Year Moving Average) Projected Years While Indian growth is higher than world growth, the two are clearly correlated 3 3

  4. Global Context Relationship between Growth of GDP World and India (1951-1979) No link-up with world economy pre-1980 4 4

  5. Global Context Relationship between Growth of GDP World and India (1980-2006) Post-1980 integration with the world economy 5 5

  6. Global Context Real Interest Rate Differential with Developed Countries (1999-07) Narrowing of the real interest rate differential reversed since January 2007 6 6

  7. Global Context World Oil price and India’s GDP growth (1974-2006) Real $ / barrel Inverse relationship with world oil price Source: www.nymex.com 7 7

  8. Expenditure composition of India GDP Fall in the share of consumption in 2000s but still higher than in China 8

  9. Growth Driven by Soaring Investment: China Falling consumption share more dramatic in China 9

  10. Decomposition of GDP Growth: China Vs India High growth driven by domestic investment, consumption and net exports in China, while the contribution by net exports negative in India 10

  11. Global Context Indian growth rate to finally converge to Chinese by 2013-14?

  12. Sectoral Composition of GDP

  13. Increasing Role of Services in Indian Growth In 2000s, services contributing nearly two thirds of GDP growth 13

  14. Sectoral Growth (Quarterly Growth Rate) Manufacturing growth rate higher than services growth in 15 out of 31 quarters from 2000-01 14

  15. Monsoon and Agriculture Growth • Agriculture growth closely follows monsoon • Better monsoon this year means a better agricultural turnout 15

  16. Industrial Growth: Controlled Vs Overall Industry Growth of industries subject to government price control lower than those where prices are market determined 16 16

  17. Growth of IIP Overall industry and manufacturing growth slowdown in 2007 first time since 2001 17

  18. Employment • Overwhelming proportion of workforce in the fast shrinking agriculture • Limited labour absorption by the booming service sector • Continued strong growth in manufacturing required for employment growth 18

  19. Growth of Employment ( 1993-94 to 2004-05) • Strong growth in employment during 2000-05 in all sectors • “Jobless growth” of 1990s replaced by high-employment generating growth in this decade (61 million new jobs during 2000-05) 19

  20. Balance of Payments • Widening trade deficits compensated by rising invisibles surplus • Huge capital inflows continuing, and to cross 9% of GDP this year!

  21. India’s Balance of Payments Trends • Mounting gap represents lost opportunities to raise investment levels • Further reforms necessary to raise the absorptive capacity

  22. Direction of Trade Major shift towards China in India’s trade; China replaces US as the biggest trade partner in 2007-08 22

  23. WPI Inflation (Week to Week)

  24. WPI Inflation ( Monthly Average) 24

  25. Global Commodity Prices (Base Year = 2005)

  26. Fiscal Scene Centre and state finances have improved steadily since 2001-02 26

  27. Tax-GDP Ratio: Centre and States Combined Direct taxes (mostly corporate and individual income taxes) rising from 2% of GDP in 2000-01 to about 7% of GDP 2007-08

  28. Total Expenditure on Subsidies, Infra & Agriculture ( % to GDP)

  29. Deepening Democracy ….

  30. Interest rate (Base Year = 2005)

  31. Real Effective Exchange Rate (REER)(Base Year = 1993-94) Since 1993-94, largest annual appreciation of the rupee (over 9%) happened in 2007-08 31

  32. Index of Real Effective Exchange Rate Current phase of appreciation of REER of about 11% since Aug 06 to Nov 07 preceded a REER depreciation of 8-9% during Jul 05 to Aug 06 32

  33. Potential Growth of the Indian Economy • OECD (2007) has computed the growth rate of potential output for India at 8.5% for 2006 • IMF Working Paper (Sept. 2007) estimated it between 7.4 to 8.1% for 2006-07 and 8 per cent for the medium term • Economy growing over 9% last two years • Estimates for 2008-09 are around 8% 33

  34. Raising Potential Output Growth • Reforms • Infrastructure • Education • Business climate • Public expenditure efficiency 34

  35. Thank You.

  36. CPI Inflation ( Monthly Average) CPI inflation also has come down but remains at about 6% 36

  37. Growth Forecasts 2007-08

  38. Index of Leading Economic Indicators (LEI) • LEI consists of: • Production of machinery & equipment • Sales of heavy commercial vehicles • Non-food credit • Railway freight traffic • Cement sales • Corporate performance (sales) • Fuel & metal prices • Real interest rate • Principal component index approach

  39. Index of Leading Economic Indicators (Quarterly) LEI forecasts a growth rate at 9.2 per cent for 2007-08 & 7.9 % for 2008-09 (Apr-Dec) 39

  40. GDP Growth Forecasts for 2007-08 40

  41. Revenue-Expenditure Growth Trends * Growth over the corresponding period of 2006-07 • High growth in direct taxes and indirect tax growth broadly on track • Huge growth in capital expenditure arising from purchase of RBI stake in SBI 41

  42. Fiscal Scene • Central and state debt positions have been improving since 2004-05, but the levels remain high by international/ past Indian standards • Mounting off-budget liabilities: oil bonds, securities to FCI, arrears of fertilizer subsidies and losses of state utilities, all about 2% of GDP 42

  43. Fiscal Forecast for 2007-08 @ Includes revenue receipts and non-debt capital receipts; # Calculated excluding transactions relating to SBI transfer; Numbers are in Rs. Crore. • Receipts much above budget estimates, revenue expenditure higher • Fiscal and revenue deficits lower than budget estimates 43

  44. Table: Central Government Budget 2008-09 (Rs. Crore)2006-07 (Actuals) • 2007-08 (RE) 2008-09 (BE) %Change 3 over 2% Change4 over 3 • Revenue Receipts (3+4)43438752509860293520.914.82. • Gross Tax Revenue47151258541068771524.217.5 • Corporation tax14430618612522636129.021.6 • Income tax8556111832013831438.316.9 Customs8632710076611893016.718.0 Excise duties1176121279471378748.87.8 Service tax37597506036446034.627.43. Net Tax Revenue (Net of States' Share)35118243177350715022.917.54. Non-Tax revenue83205933259578512.22.65. Recoveries of Loans589344974497-23.70.06. Other Receipts*5345941016511.21611.37. Total Expenditure*58338767384275088415.511.48. Revenue Expenditure51460958858665811914.411.8 Of which: Interest payments15027217197119080714.411.09. Capital Expenditure*68778852569276524.08.810. Revenue Deficit (8-1)80222 (1.9)63488 (1.4)55184 (1.0)-20.9-13.111. Fiscal Deficit [7- (1+5+6)]142573 (3.5)143653 (3.1)133287 (2.5)0.8-7.2*Excludes transactions related RBI

  45. Fiscal Forecast for 2007-08 @ Includes revenue receipts and non-debt capital receipts; # Calculated excluding transactions relating to SBI transfer. Both fiscal and revenue deficits lower than budget estimates

  46. Tax-GDP Ratio: Centre (Gross) Direct taxes overtaking indirect taxes in the current year

  47. Employment

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